Q&A document compiled with Liam Collins

During December 2011/January 2012 I worked with Liam Collins on a Q&A document with the view to this being sent to all C&B investors - it never was. The reason Liam gave was that the answers to the questions were covered by C&B's response to the FT questionanaire that they posted on their blog (http://collinsboneinvestment.blogspot.com/). As such, I see no harm in now making the Q&A document available to all C&B investors via this blog.

ANSWERED QUESTIONS 

Question set 1

You are calling in the receivers, so they will presumably be winding up the partnership, and extracting any value that there is. But the 5-year plan PNs are with C&B. So what is the contractual/legal obligation for the directors to repay investors over the next 5 years with C&B going into receivership, as any receivership process will be over well before 5 years?

• Liam answer: Any agreements with C&B will be void as the partnership will be wound up. This was only ever going to work if we managed to get 100% to sign.

What is the nature of the C&B partnership wrt liabilities of directors?

• Liam answer: There are no directors only 2 partners.

What is the sum GBP value of C&B investor investments?

• Liam answer: just over 4m if you include interest but receivers would not look at this they will most likely look at what you invested and what you have had back. So if someone invested 10k but has had 1k in interest they will likely look to call it 9k which will reduce the liability considerably.

What is the sum GBP value of C&B investor investments of investors who have signed the 5-year plan?

• Liam answer: This is not relevant as the plan has not worked.

What is the sum GBP value of C&B investor investments of investors who have refused to sign the 5-year plan?

•  Liam answer: Again not relevant.

The 5-year repayment PN states: "Payments will be made to the Creditor from net profits pro-rata in proportion that the Debt bears to the total debts to Creditors". So what will happen to investors who have not signed the 5-year plan?

• Liam answer: Again not relevant as this was the plan if C&B was allowed to keep going. The 5-year repayment PN states: "The liability of Liam Collins and David Bone Jnr shall be joint and several" This means that you are both liable for all the debts and liabilities of the firm.

What indemnity insurance, if any, do either of you have?

•  Liam answer: Again not relevant as this plan is now void. 

Has a liquidator been appointed yet, and if so what are his/her contact details, and when & where is the bankruptcy hearing to be held?

•  Liam answer: The hearing is in the week commencing 23/1/2012.

What is the nature of the C&B partnership wrt the liabilities of its individual partners?

• Liam answer: we have 27 assets 11 are held in my name, 2 are held in Davids name, 5 are held in David and my name, 7 are held in mine and a former business partners name but he will be taken off the properties as he has no right to any of them. David’s personal home is in the joint name of him and his wife. We did have 2 others but they have recently been repossessed.

In the Collins & Bone collateral document (attached), there is the statement: "Additional security in that all Directors assets are held in the partnership as collateral." Was this meant to say "partners" as opposed to "Directors", and what are their current assets and associated value?

• Liam answer: It simply means our properties act as security and that in the event of bankruptcy they would be sold.

When exactly was the C&B partnership formed?

• Liam answer: We were partners in 2002 but really it was not until 2005/6 that Davey became an active partner - before this most of the track record and properties were my own.

Given that the partnership is going into liquidation, is it possible for the terms & conditions of the partnership to be disclosed?

• Liam answer: I need to find the partnership agreement. I believe it was a verbal agreement but we may have a written one. We are family and have been close all our lives so we have not had the need for a written one.

The figure of 4m for C&B investor investments, what is this comprised of? PNs and/or C&G loans and/or family loans and/or etc. Can we have the breakdown?

•  Liam answer: Total invested on PNs originally between 2006 and 2009 = £430 k These figures are based on what invester’s originally invested and does not include any interest owed but does not take off interest from all parties who have had it so I will need to refine this but this is a ball park figure Total invested in CBS which was carried over = 2.3m this will be reduced to around 2m as it includes interest as per the PN i not paid on time. Total invested in C&B post 2009 = 1.5m which will come down to close to 1m when you take all interest off which investors have had. Total other creditors = £200k Total debt = 400 + 2m+1m+ 200 = around 3.6m So the conclusion is still no one will receive anything from the sale of the assets unless the market moves dramatically. These figures all need tightening but are close enough for you to see the picture.

What was the value of loans made by C&G to C&B, and when were they made?

• Liam answer: This will need to be thoroughly investigated by a forensic accountant.

Question set 2
From your blog:

"Liam & Davey, in good faith, agreed to take all non-refundable deposits (not loans as stated in the blog) that had collapsed with CBS into Collins & Bone which would offer some protection to existing investors and allow them to benefit from the existing Collins Bone portfolio as a degree of protection.A gentleman’s agreement existed between Mark & David Snr and Liam & Davey whereby should the variant model used by Castle & Gatehouse take off as expected that the profits dispersed would be used in first instance to redeem Collins & Bone investors. This was an offer of goodwill and nothing more; no guarantee was ever asked or offered, and no written agreement of any kind was made."

What was the value of debt that C&B took on from CBS?

•  Liam answer: around 2.5m

What was the date on which C&B took on this debt?

•  Liam answer: end of 2009 when CBS was liquidated

How can the taking on this debt by C&B be viewed as at all fair to, or in the best interests of, C&B investors?

•  Liam answer: It is not fair I agree. I believe if I was making the rules those who had not originally invested in C&B should be treated differently. We know that the FSA treats them differently but it is whether the receiver will. If he does then he will make C&B PN investors a priority which I agree should be the case. That said all this is largely irrelevant who is prioritised as there will be nothing realised from the sale of the assets and so there will be nothing to prioritise. It is now down to us and our moral obligations as to who we choose to prioritise if the law allows us to do so as I am sure you will understand I am happy to pay back those who have supported us and those who have made it difficult I have no intention of paying a penny back.

Were C&B investors consulted at all about the taking on of this debt?

•  Liam answer: To those who asked the question they were always given a straight answer. The track record was there for all to see on companies house and when anyone asked the debt position of the company I have always given a straight answer. We always had a great deal of commercial equity but as the houses have dilapidated as we have prioritised investor interest payments over all other things including family wages and repairs. We are now left with properties which we have many voids. We currently have 14 rooms empty in Loughborough alone because of this.

Since these debtors were taken on by C&B, what is the GBP value of monies that have been paid out to them since?

• Liam answer: Since the debt has been taken over almost zero has been paid back in capital repayments as interest to C&B investors was always prioritised.

[ *** ewart ***]: From subsequent answers given, the amount paid back in capital repayments to ex-CBS debtors is circa 300k GBP, which is not insignificant given the value of C&B PNs taken out in 2010/2011. Will you give consideration to updating your answer above with this amount?

I asked this question previously, but the answer given did not address the question. The question is why was debt from a completely separate company (CBS) brought into C&B, and how could doing this possibly be conceived as being in the interests of C&B investors? You were not legally obligated to bring this debt into C&B, so why did you?

• Liam answer: I have answered this sufficiently many times and yes you do have my answers.

[ *** ewart *** ]: Based on the above answer from Liam, I will infer the answer to be as per the excerpts below, but it doesn't answer the question of how this could possibly be viewed as fair, or in the best interests of, C&B investors. 

Excerpt from the official C&B blog:

"The relationship between Castle & Gatehouse, CBS and Collins & Bone is simply stated. Liam & Davey founded Collins Bone many years ago (8-9 years ago) as a partnership to build their own property portfolio. Having amassed some 30+ properties they began to provide property investment services for other investors based on their model of student property and room-by-room rentals. They founded CBS and enjoyed some success in the later stages of the 2000-2007 bull market. David Bone Snr and Mark Black were employed in the later stages of CBS in the months preceding the mortgage collapse. The universal withdrawal of 85%LTV mortgages crippled the CBS financial model, which relied entirely upon the availability of mortgage credit. Several avenues were pursued to try to adjust to the changed landscape and the business model underwent several iterations in response to a worsening credit market. Ultimately CBS was unsuccessful in attempting to re-invent its business model and collapsed. At this point Mark Black and David Bone Snr pursued a variation of the model through a new vehicle, Castle & Gatehouse, which utilised cash joint ventures to trade property without the need for increasingly sparse mortgage approval. It traded separately to C&B and raised its own funds. Liam & Davey, in good faith, agreed to take all non-refundable deposits (not loans as stated in the blog) that had collapsed with CBS into Collins & Bone which would offer some protection to existing investors and allow them to benefit from the existing Collins Bone portfolio as a degree of protection. A gentleman’s agreement existed between Mark & David Snr and Liam & Davey whereby should the variant model used by Castle & Gatehouse take off as expected that the profits dispersed would be used in first instance to redeem Collins & Bone investors. This was an offer of goodwill and nothing more; no guarantee was ever asked or offered, and no written agreement of any kind was made."

 Excerpt from Liam to all C&B investors dated 12/01/2012:

"Yes I was in court last year and yes I did offer to pay back the investor via dancing. He laughed at the proposal and so I did not. If anyone is happy with me dancing to pay back cash I will happily do what it takes. It may take some time but my commitment is absolute. This was also a CBS investor, someone where we had changed his none refundable deposit into a debt for no reason at all other than good will. He has pursued us aggressively and I expect him to continue to but simply so that you all know. This is a true story and I did offer to pay him back via entertaining. At no point may I add did I ever say i will pay you back via raising new investment and you will not find any investor who has been paid back via raising new investment so for those thinking this was another Bernie Madoff scam it is far from it. We should never have taken over debt from one company as unfortunately the person we offered to protect is also the person making us bankrupt. It is for this reason that no matter what we do moving forward we cannot ever offer personal guarantees to anyone ever again only gestures of goodwill and gentlemen’s agreements to pay back what we can when we can."

In a previously answered question you were asked whether C&B investors were consulted at all about the taking on of debt from CBS, to which you responded in part with:

"To those who asked the question they were always given a straight answer. The track record was there for all to see on companies house and when anyone asked the debt position of the company I have always given a straight answer."

What track record were investors supposed to be looking at? The C&B partnership was a completely separate standalone company that has no documents whatsoever registered with CH (if so, under what company #?). Please specify the exact CH documents you are referring to that constitute to this track record.

• Liam answer: I answered this previously saying that any investor could type my name in and see that CBS had been bust in 2009 or was in liquidation this caused many investors to ask questions. It is totally unrealistic to think we would write on our literature “beware we have a track record of failure as our last company is in liquidation.” If you look up the most successful businessmen in the world you will see a wake of liquidated companies but I do not see Richard Branson advertising on Virgin that by the way before you get on this flight be aware that Mr Branson has a criminal record. It simply is not something any businessmen would right. There is transparency which companies house allows for and there is stupidity. I have always answered all questions relating to CBS with honesty and integrity.

From the time that C&B was founded up until now, at what periods of time did the following formula hold true?:

(equity in the partnership) <= ((value C&B investors PNs) + (value C&G loans) + (money loaned from family)) 

• Liam answer: This is impossible to answer without having every single rent statement for each month from the beginning of 2004. With CBS Lettings, Diggs and Patrick Properties all liquidated this is an impossible task. What I can say is at any one point when we took an investment we believed that we would have enough equity commercially to sell the assets.

And following on from the above question, why was the above permitted to become so negative before you decided to liquidate the company? I mean, ignoring the 2.5m debt taken on from CBS (which should never have been done), and given that there is preciously little equity in C&B, why was the imbalance allowed to grow to 1.5m before calling it a day?

• Liam answer: Will answer these in parts: a) why was the above permitted to become so negative before you decided to liquidate the company? We always had a business fund about to begin whereby the cash flow would allow us to repay the principle loan. We also had enough cash flow until recently to always cover interest payments from the rental income. b) I mean, ignoring the 2.5m debt taken on from CBS (which should never have been done), The 2.5m debt was neveignored far from it we did everything within our power to protect both the CBS investors as well as C&B investors. To say it should never have been done is accurate when speaking commercially but in terms of ethics we believed that to say to people it was a non refundable deposit and tough luck was too harsh and we believed it was right to give personal guarantees. c) and given that there is preciously little equity in C&B, why was the imbalance allowed to grow to 1.5m before calling it a day? We had to look at the cash flow all of the many funds we had set up would generate and look at realistic scenarios. At the time assuming everything we set up would fail was not realistic but it now shows you have to look very differently in this market. However I still feel if you plan your business around the absolute worst case scenario no one would ever do any business. I cannot expect anyone to appreciate this statement without knowing just how many things we had set up and how many failed.

At what point (date) did C&B stop taking on new investors, and what was the value of: ((equity in the partnership) - ((value C&B investors PNs) + (value C&G loans) + (money loaned from family))) at this time?

• Liam answer: April 2011 was the last loan from a close associate which was entirely unsolicited and we were reluctant to do so but at the time we had completed our audition piece with flying colours for Matterhorn and they had confirmed business would start with an investment of 3m. 2010 was the time we stopped taking new investors hence why we have stated we would not take another new investor into C&B so it is a waste of time trying to protect investors. Since 2010 all we have sold as a family group of companies is either finished properties or structures whereby the investor keeps the money in their account.

If a potential C&B investor had come to you and said "I cannot afford to loose this money", after what date in C&Bs history would you have said "this vehicle is not for you", and what is the basis for selecting this date?

• Liam answer: As a salesman it was my job to sell but that said after April 2011 I said to everyone and I remember the call “Even if someone wanted to give us cash now we cannot take it as I am now sick of being led along by Matterhorn. That said Matterhorn did come back later to renew confidence in the deal but despite this I was not comfortable about taking any new investments.

Question set 3
Of the bricks-and-mortar assets owned by C&B, what is the GBP value of investor monies tied up in these assets?

• Liam answer: To my knowledge no investors money has been used to buy the current assets as we last bought an asset for C&B in 2008.

What exactly was money subsequently invested in C&B post 2008 used for?

• Liam answer: We never received an investment at any one time above 150k into the collateral product so for that reason no one person was ever offered the Harrods escrow account which we had or the first charge over any assets. The average investment was £20k all investors knew you cannot buy a house for 20k and when on the phone the answer I gave was for those who asks. We have one account where the monies are deposited and this is also our trading account so if there is 20k in and we manage to raise another 80k that week then yes we will use that to go and buy a property renovate it and then sell it as this model had been proven by us to make substantial returns. The problem is when the investment comes in slowly over periods of time and so is used in running costs lowering the amount possible and decreasing buying power. If investors had invested all at the same time then we would be in a very different position no doubt as we would most likely have a great deal more assets. As competition for Google ads rose and budgets increased the cost for raising investment itself increased, overheads increased and the frustration of major funds not kicking off put an enormous strain on the business. Investors were offered 10% annually or 8% monthly and almost all went monthly putting a huge strain on monthly running costs and a further pressure to get the large funds underway. If you look at the brochure attached you can see that The fund – never took off after huge costs due to an old investor who ruined all chances. The syndicates were a great idea but were deemed unsuitable after the change to a coalition government and tightening of FSA. The readymade deals we failed to sell after our partners in Northern Ireland who were selling these lost their financial backing. And sadly after all of this failure together with other products being withdrawn due to FSA regulations like collateral we are left with only one thing which sold, the C&B PNs which was a debt instrument meaning all we are left with here is debt. But make no mistake about it we do have a plan for a way out and we will pay this back. One other point is that some investors think that they should have been given a charge over assets but they unfortunately would never have been offered this as they invested less than 150k, others say I had told them their money would be in escrow even though this is never the case for less than 150k and I would never have said that. Other investors think that they invested in the company and have a right to see accounts and make decisions. No one person has ever invested in a company of mine they have only either leant us money or put down a none refundable deposit. Some investors think that the money should have been kept in escrow and in hindsight I have to agree but it was not and they were not sold on it being so.

The properties that C&B acquired <= 2008, how were these paid for? Were they purchased exclusively using mortgages given that there is no equity in these properties today?

• Liam answer: They were paid from release of equity, dancing money and personal loans from family and friends. This was the birth of the birth of Promissory Notes which we would later come back to in 2010.

How much investors monies in the form of PNs did C&B receive in each of the quarters for 2010 & 2011? From an answer to a previous question, the total was just above 1m.

•  Liam answer: Without going through accounts I cannot say and this is a lengthy task which I am more than happy to do if asked by an official body but for the nature of this email I am happy to leave this question as the total is just over 1m. I fail to see the relevance here of quarterly breakdown.

Post 2008, was there any equity taken out of properties that C&B owned by virtue of mortgaging or being used as security against other loans that subsequently went pear-shaped?

•  Liam answer: no In response to a previously answered question, you made the statement: "If you look at the brochure attached you can see that The fund – never took off after huge costs due to an old investor who ruined all chances."

What brochure, and section thereof, are you referring to (there was no e-mail attachment)? The C&B collateral document?

• Liam answer: Apologies I was referring to the one attached (CandBoverview.pdf) which was later changed as the FSA would not allow us to use terms like Asset backed securities as they should only be used for referring to debt instruments like bonds or FSA regulated products. Remember there is a huge difference from an FSA authorised Fund and an FSA regulated Fund. We had an FSA authorised Fund.

Given that C&B purchased no properties after 2008, do you feel that C&B used monies raised through PNs in a manner consistent with the C&B collateral document (copy attached)?

•  Liam answer: All investments above 150k would have had a separate Harrods account as promised and would have had an individual charge and first charge over an asset which was debt free. This was the collateral model lifted from C&G and reskinned in an experiment to see if C&B was better suited to market it. No one actually ever invested above 100k therefore no one was given an escrow account of a first charge. This cannot be mixed up with those who invested below 100k. If someone invested 10k the intention was to use the loans to buy renovate and sell assets. It was used for renovations this is fact and it was used to fund the sale of assets but it could not be used for purchasing because 10k is never enough and has never been enough for many years to buy a house as you know. So for those who think that they should have owned a part of a house, this would assume we were selling a syndicated model which we were not. We tried to sell a syndicated model used a huge amount of resources to get this off the ground as it was a lovely model but the FSA deemed this unsuitable as they classed it as a collective investment scheme which would need regulation. We spent some time and money sitting the exams to get FSA regulation and passed the first set of exams but did not have the time nor the money to continue so we simply pulled the product.